LN2-Thefinancialsystem

LN2-Thefinancialsystem - FINANCIAL ASSETS AND FINANCIAL...

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FINANCIAL ASSETS AND FINANCIAL MARKETS
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Key Topics • The structure: securities traded on them • The function of financial termediaries: their activities intermediaries: their activities • The US system
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The Function of Financial Markets To channel funds from those with a surplus to those with a shortage. In so doing, they: duce the cost of investment reduce the cost of investment. • facilitate capital accumulation. facilitate consumption smoothing .
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Financial Assets • Financial assets are really claims to future repayment. • Investors give resources (“money”) for these claims today. • They receive resources (“money”) in the future in rtain states of the world certain states of the world. • In other words: claims to the future income or wealth of the seller.
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Types of Financial Assets • Broadest classification: –S tocks . – Bonds. – Derivatives.
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Bonds • A bond is an asset that gives the owner the right to a fixed, predetermined payment at a future predetermined date. • The date (i.e. the length of the contract) is called ti t maturity . he amount of money the bond will pay in the The amount of money the bond will pay in the future is the nominal value (aka face value, par value or principal ).
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Bonds (contd.) Short-term vs. long-term bonds (depending on their maturity). Pure Discount Bonds: include only an initial payment (its price) and a final ayment (the nominal value) payment (the nominal value). Usually bonds make periodic payments ( coupons ). At aturity buyer gets final coupon plus nominal value maturity buyer gets final coupon plus nominal value.
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Stocks • Gives owner (stockholder) a claim to a firm’s profits
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This note was uploaded on 11/21/2011 for the course ECON 422 taught by Professor Sious during the Spring '11 term at Emory.

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LN2-Thefinancialsystem - FINANCIAL ASSETS AND FINANCIAL...

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